Friday, June 16, 2017

And regular banks have no loan account with the central bank?

I hear this fear from traditional bankers that we cannot have all the depositors rush to the central bank to deposit accounts. In a crisis, depositors might withdraw funds from regular banks causing a bank run.

But, regular banks can have lending accounts at the central banks, hence no problem. The loans to deposits still mostly balance.

Speaking in Frankfurt on Wednesday, Weidmann said he believes that central banks will eventually create their own digital currencies to reassure average citizens that such currencies are safe and stable, but in doing so could increase the risk of bank runs in future crises."Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent," Weidmann said in a speech largely focused on the European Central Bank's QE programme."This is a feature which will become relevant especially in times of crisis – when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety might be a bane for banks, as this makes a bank run potentially even easier."